Growth among family businesses will be held back if the community does not improve its strategic and succession planning, new research cautions.
This was the stark warning from PwC's eighth biennial Global Family Business Survey, which urged family business leaders to bolster their abilities to adapt to digital technology, succession, finance, and professionalisation.
Almost half (43%) of the 2,802 family businesses, with sales turnover of $5 million to more than $1 billion in 50 countries surveyed between May and August, admitted they did not have a succession plan in place at all. Only 15% of family firms had a succession plan for all senior executives.
Typically, 12% of family firms last into a third generation and just 3% are still operating beyond four generations.
Sian Steele (pictured third from left), UK family business leader at PwC, joined Stephanie Hyde, global entrepreneurial and private business leader at PwC, Matthew Sharman (left), chief financial officer at British structural glazing family business Cantifix, and Dr Eric Clinton, director of the Dublin City University Centre for Family Business, for a web casted discussion about the survey at PwC in London this week. The web cast can be viewed here.
“There’s no point having detailed plans for business continuity, if the single most significant risk to this is not addressed,” Steele said at the announcement of the survey.
“A managed succession process can be a rallying point for the family, allowing it to reinvent itself in response to changing circumstances, but without a plan it is the most obvious ‘failure factor’ for the family firm. Failing to plan is planning to fail.”
The PwC survey chimed with The Global Family Office Report 2016 by Campden Wealth with UBS, which surveyed 242 family offices with an average size of $759 million assets under management. The report found 43% of family offices expected a generational transition within the next 10 years and 69% in the next 15 years.
“With succession now fast approaching for many family offices, executives need to be taking steps to ensure that they are relevant and ready for the next generation,” the GFO report said.
While global economics and politics have been uncertain, almost two thirds (64%) of family businesses have grown over the past year, the PwC survey continued. Family businesses remained a vital part of global economies, contribute to the bulk of gross domestic products in many territories, and are a primary driver of job creation, Steele said.
However, ensuring the company stayed in the family was not as important as it once was. Fewer than half of family businesses planned to pass both ownership and management of business fully to the next generation (39% will pass on management; 34% will pass on ownership).
First-generation business owners were now almost twice as likely to be planning to sell or float their business (29% vs 17% average across all businesses).
The PwC survey also highlighted the risk of European and American family businesses being left behind by rivals in Asia Pacific.
Family businesses in Asia Pacific were found to be the most ambitious, with 21% looking for the quickest and most aggressive growth. This contrasted with fewer family businesses in Western Europe (10%) and North America (12%) that were gearing for “quick and aggressive growth”, with respondents in these mature regions mainly predicting “steady growth”.
Globally, 15% of respondents to the PwC survey said they aimed to grow quickly and aggressively in the next five years, while 70% aimed to grow steadily.
The United Kingdom placed above the global average, with nearly one in five (18%) aiming for quick and aggressive growth.
Following the 23 June referendum in the UK on whether to leave the European Union, questions about the potential impact of Brexit on their businesses were added to the PwC questionnaire. A total of 1,145 respondents answered.
Respondents globally did not see the result of the EU referendum affecting their growth ambitions, with only 15% saying it will have a negative impact. Fears about the potential impact of Brexit in the next one-to-two years were highest in the UK (38%).
Globally, 83% said they were not planning to take action to address Brexit. However, almost half of UK family businesses surveyed (49%) had already taken measures or planned to take measures as a result of Brexit.
Steele said experience had taught that UK family businesses were adaptable when confronted with new challenges and opportunities.
“There will be significant uncertainty over the coming months as the detailed political and legal issues around Brexit are worked through, and business confidence may be impacted,” she said.
Other highlights from the PwC Global Family Business Survey:
64% identified innovation as a key challenge to keep ahead in the next five years
47% said keeping pace with digital and new technologies was one of their key challenges, yet only a quarter thought their business was vulnerable to digital disruption
Three out of five respondents said they will bring in non-family professionals to help run the business
58% said their ability to attract and retain the right talent was a key challenge over the next five years
48% believed they needed to work harder than non-family businesses to recruit/retain top talent
A third said they found it harder to access capital (32%) than their non-family business counterparts. Three quarters (76%) said they will use their own capital to fund growth
45% believed their business was prepared for dealing with a data breach or cyber-attack
Most family businesses identified political and economic stability as more important than growth potential when considering new export markets
Next generation family members were more certain they had to work harder to prove themselves than current generations (88% vs 66%). Nearly two-thirds said they were properly appraised (65% vs 59% in current generations)